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Advances in Social Sciences Research Journal – Vol. 10, No. 6.2

Publication Date: June 25, 2023

DOI:10.14738/assrj.106.2.15004.

Kamarudin, M. F., Khamis, M. R., Rahman, A. A. (2023). Behavioural Response Patterns on the Government Incentives Influencing

Compliance Behaviour of Business Zakat among SMEs. Advances in Social Sciences Research Journal, 10(6.2). 232-247.

Services for Science and Education – United Kingdom

Behavioural Response Patterns on the Government Incentives

Influencing Compliance Behaviour of Business Zakat among SMEs

Mohd Faizal Kamarudin

Faculty of Business and Management,

Universiti Teknologi MARA, Puncak Alam Campus, Malaysia

Mohd Rahim Khamis

Corresponding Author

rahim474@uitm.edu.my

Faculty of Business and Management,

Universiti Teknologi MARA, Puncak Alam Campus, Malaysia

Azman Abd Rahman

Faculty of Syariah and Law,

Universiti Sains Islam Malaysia, Nilai, Negeri Sembilan, Malaysia

ABSTRACT

Government incentives and compliance behaviour of business zakat have a

significant relationship as revealed by a few studies. However, the lack of study

focused on respondents' response on the government incentives in influencing

compliance behaviour of business zakat. Hence, this article examines the usage of

Rasch Wright map in evaluating the behavioural response patterns on the

government incentives and compliance behaviour of business zakat among SMEs. A

total of 276 questionnaires were collected from SMEs entrepreneurs in Selangor.

The Rasch Measurement Model was employed to analyze the data. Out of the 276

questionnaires collected, only 247 responses were consistent with the Rasch

Measurement Model. Among the respondents, 107 individuals (43.3%) who

complied with business zakat payment were influenced by government incentives,

while 140 individuals (56.7%) who did not comply with business zakat payment

were likely not influenced by government incentives. This study's results highlight

the importance of the Rasch Measurement Model in elucidating the response

patterns of participants, demonstrating its ability to explain how government

incentives impact compliance behavior regarding business zakat among SMEs. This

study has illustrated that this method of analysis is expedient in identifying the

unusual and inappropriate response patterns and items based on fit statistics and

misfit response series compared others. This shows that the Rasch Measurement

analysis is an alternative tool to investigate the behavioural response patterns since

analyze items and respondents of the study. This study suggests that future

research regarding compliance and zakat employ the Rasch Measurement Model

analysis as an alternative method to identify ability of respondents and the

response behavior patterns among respondents.

Keywords: Zakat on Business, Compliance, Rasch Measurement Model, Rasch Wright Map

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Kamarudin, M. F., Khamis, M. R., Rahman, A. A. (2023). Behavioural Response Patterns on the Government Incentives Influencing Compliance

Behaviour of Business Zakat among SMEs. Advances in Social Sciences Research Journal, 10(6.2). 232-247.

URL: http://dx.doi.org/10.14738/assrj.106.2.15004

INTRODUCTION

Zakat holds a crucial position in Islam as one of its fundamental pillars, and it is considered a

form of worship obligatory for all eligible Muslims. Ranked as the third pillar, following the

declaration of faith (syahadat) and the daily prayers (solat), zakat's significance within the

Islamic faith is evident. The historical requirement of zakat payment can be traced back to the

second year of Hijriyah (624 C.E) [1,2]. During the time of Prophet Muhammad (Pbuh), zakat

held a significant position and greatly influenced the progress of the Muslim community

economically, politically, and socially [3, 4, 5]. Throughout its evolution, the concept of zakat

has experienced a notable shift and is now acknowledged as a vital driver for Islamic economic

advancement. It functions as a financial reservoir that propels the economy of the Muslim

community forward [6, 4, 7, 8]. Consequently, it is incumbent upon eligible Muslims to fulfill

the necessary conditions and contribute zakat, ensuring its effectiveness in fostering economic

growth within the Muslim community.

The Quran dedicates several verses to emphasize the duty of paying zakat. An example can be

found in the Al-Baqarah chapter of the Quran, where it calls upon all Muslims (2:43):

“And be steadfast in prayer; practise regular charity; and bow down your heads with those who

bow down (in worship)”

Although the Holy Qur'an and other sources provide explicit instructions on the mandatory

nature of zakat payment, there remains a lack of awareness among certain Muslims, resulting

in confusion surrounding their zakat obligations. Some Muslim individuals mistakenly assume

that fulfilling the obligation is limited to paying zakat al-fitr, a yearly contribution made during

the month of Ramadan until the first day of Syawal [9]. This misunderstanding can potentially

contribute to the incomplete fulfillment of zakat payment among certain Muslim individuals.

Hence, it is of utmost importance to effectively communicate and provide clear explanations

about zakat to Muslims. This educational effort aims to broaden their understanding that

meeting the obligatory zakat payment involves more than just zakat al-fitr. It encompasses

diverse forms of wealth-related zakat, necessitating comprehensive comprehension and

heightened awareness.

Muslims generally demonstrate a steadfast dedication to fulfilling their obligation of zakat al- fitr [10, 11, 9], promptly adhering to this duty as it is deeply rooted as a part of an obligatory

deed during the month of Ramadan [12]. Nonetheless, a comparable level of commitment is not

consistently seen when it comes to paying zakat on wealth, specifically in relation to zakat on

business. Within the realm of zakat practitioners, numerous contentious issues persistently

spark vigorous debates [5, 8]. Various issues necessitate clarification, encompassing the

enforcement of zakat payment laws, the evaluation of a company's legal status or entity,

regulations involving fatwas, and other aspects concerning zakat on business [13, 14, 15].

Although prior studies have primarily focused on zakat on income, limited attention has been

given to business zakat in Malaysia [16, 17, 18, 19, 5, 7, 8], particularly regarding effective

strategies to augment the overall collection and encourage more Muslim entrepreneurs to fulfill

their obligation of paying business zakat.

Zakat institutions in Malaysia encounter challenges in generating sufficient collection from

business zakat [10, 20], in contrast to zakat on income. As a result, the overall accumulation of

business zakat is comparatively lower when compared to zakat on income [20]. Additionally,

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Advances in Social Sciences Research Journal (ASSRJ) Vol. 10, Issue 6.2, June-2023

Services for Science and Education – United Kingdom

there exists a notable disparity between the small proportion of zakat payers among the Muslim

business community and the overall number of businesses registered with the Companies

Commission of Malaysia. Considering these concerns, the primary question that needs

addressing is the underlying reason behind the reluctance of Muslim entrepreneurs to fulfill

their obligation of paying business zakat. To tackle the issue of non-payment, zakat institutions

have devised several strategies to encourage Muslim entrepreneurs to contribute zakat on their

business earnings. To address this, zakat institutions have implemented various measures

aimed at enhancing participation and awareness among Muslim entrepreneurs regarding the

payment of business zakat. These measures encompass the introduction of multiple payment

methods, the implementation of active marketing campaigns, the organization of workshops

and conferences, and other alternative channels to increase engagement and understanding.

For instance, based on statistical data from Companies Commission of Malaysia and Annual

Report Pusat Pungutan Zakat, Kuala Lumpur in 2009 Selangor which has a high total collection

of zakat in Malaysia, has only 3.5 percent (3,685) business zakat payers (assuming that

approximately 19 percent of the 553,864 businesses registered represent the Muslim business

community). This figure reflects a small percentage compared to the total Muslim business

community in Selangor.

Previous studies explained there have various factors that influencing compliance behavior of

zakat such as level of religiosity [21, 22, 23, 24, 25, 5, 26, 27, 28, 16, 29], level of knowledge [30,

31, 11, 32, 33, 5, 27, 28, 16, 34], organizational factors [11, 25, 35, 36, 28, 16] government

incentives [37, 16], law enforcement [38, 33, 14, 16] and length of business operation [33, 4,

16]. Nevertheless, the majority of existing studies primarily concentrate on examining the

factors that influence compliance behavior and zakat on income, leaving a notable gap in the

literature when it comes to exploring compliance behavior and business zakat. Particularly,

there is a lack of research and scholarly work that delves into analyzing response patterns

among SMEs regarding the impact of government incentives on business zakat compliance

behavior. This study hypothesised that government incentives have influence on compliance

behaviour of business zakat. Hence, the purpose of this study is to investigate the behavioural

response patterns among SMEs on the government incentives influencing compliance

behaviour of business zakat. So, it can prove that government incentives as an important factor

influencing the Muslim business community to pay zakat on business.

LITERATURE REVIEW

Government Incentives and Compliance Behaviour of Zakat

A government incentive is a stimulus offered by the government to promote compliance among

individuals. In the context of zakat, government incentives encompass measures such as zakat

deductions and tax rebates, aiming to incentivize both Muslim individuals and the Muslim

business community to fulfill their zakat payment obligations. The government provides two

distinct incentives, each with its own approach. Tax rebates specifically apply to individuals

who pay zakat on income, as explicitly stated in section 63(A) of the Income Tax Act 1967:

“rebate shall be granted for a year of assessment for any zakat, fitrah or any other Islamic

religious dues payment of which is obligatory and which are paid in the basis year for that year

of assessment to, and evidenced by a receipt issued by, an appropriate religious authority

established under any written law” (Income Tax Act 1967, 2006, p. 94).